Toy & Hobby Stores
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Industry Overview
The US toy and hobby store industry includes about 9,000 stores with combined annual revenue of about $20 billion. Major companies include Toys "R" Us, Michaels Stores, and AC Moore Arts & Crafts. The industry is highly concentrated: the top 50 companies generate about 85 percent of revenue.
Competitive Landscape
Consumer spending is a key driver of demand for toy and hobby stores. In addition, population growth among young children (under 12) drives demand for toy stores, and population growth among women 35 and older drives demand for hobby stores. The profitability of individual companies depends on the ability to generate store traffic and effective merchandising. Large companies offer wide selections and deep discounts. Small companies can compete effectively by offering specialized products, providing superior customer service, or serving a local market. The industry is labor-intensive: average annual revenue per employee is $125,000.
Toy and hobby stores compete with mass merchandisers. Toy retailers also compete with consumer electronics stores, due to the increasing popularity of electronic toys and video games. Hobby stores compete with fabric and sewing goods stores in select market segments.
Products, Operations & Technology
Major products include toys (30 percent of sales), craft supplies (15 percent), and kitchenware (10 percent). Other products include games, hobby goods, artificial flowers, and sewing and knitting materials. Toy stores may provide assembly or delivery services. Hobby stores may offer classes, known as “how-to” seminars, and picture framing or floral arrangement.
Toy and hobby stores include national chains, regional chains, and independent retailers. National and regional chains operate in large strip malls or stand-alone locations, and stores range from 18,000 to 45,000 square feet. Chains may operate midsized stores, ranging from 3,000 to 5,000 square feet, in indoor shopping malls. Independent retailers typically operate much smaller stores, often as small as 1,500 square feet. Chains consider proximity to distribution centers when opening new stores.
Large toy stores generate up to $9 million annually and average $240 per square foot. Large hobby stores generate between $4 and $5 million annually and average between $200 and $240 per square foot.
Inventory assortment depends on store size and product specialization. Large toy stores offer between 8,000 and 24,000 stock-keeping units (SKUs), while a specialty toy store may only carry 500. Large hobby stores carry up to 45,000 SKUs, while a specialty hobby store may offer 6,000. Most retailers must accommodate seasonal inventory, as demand for toys and hobby goods increases during holidays like Easter and Christmas. Inaccurate forecasting is a frequent problem and most retailers rely on end-of-season sales to clear merchandise. Some retailers use automated merchandise replenishment systems to minimize out-of-stocks and allocate products across stores. Stores receive inventory directly from suppliers or from off-site distribution centers. Large stores may receive shipments several times a week.
Toy and hobby stores buy products from manufacturers, importers, or distributors. Both retailers may offer unique private label products, which generate higher margins. Toy stores may depend greatly on major toy manufacturers due to the popularity of branded products like Barbie and Hot Wheels. Imports are a high percentage of toy and hobby products, and retailers may place orders up to six months in advance. Due to the importance of the winter holiday season, major toy retailers may place positional orders over a year in advance. Retailers attend trade shows (like the American International Toy Fair for toy stores) or craft fairs to help decide on merchandise.
Due to the large number of SKUs, companies rely on computerized inventory management systems to manage products at stores and distribution centers. Handheld radio frequency (RF) guns track in-store inventory. Companies may use electronic data interchange (EDI) to optimize purchasing. In addition, companies may use Internet-based transportation management systems to track merchandise shipments through the supply chain.
